Pension costs hitting Swiss cantons – report

SWITZERLAND – Rising pension and health care costs are putting pressure on the budgets at Swiss cantons and cities, according to Standard & Poor’s Ratings Services.

“The rising costs of health care and pension funding are likely to continue to put pressure on the budgetary performance of Swiss local and regional governments in 2005,” the firm said in a report.

"In the medium-term, the successful control of expenditure, in particular for personnel and health care, as well as the implementation of measures to stabilize or increase the coverage rate of public pension funds will be important for the development of budgetary performance of Swiss local and regional governments," said S&P credit analyst Christian Esters.

S&P said that although the performance of pension-fund assets has stabilized and become positive in most cases since 2003, following substantial declines in 2001 and 2002, the coverage rates of many cantonal pension funds has not improved significantly.

It added that this has triggered the need for several cantons to take measures such as to decrease the level of pensions paid, to increase contribution rates into the funds, or to make one-time capital contributions.

One example was the significant increase in the northern Canton of Aargau’s debt burden. This was exclusively the result of a capital injection into the cantonal pension fund after the underfunded teachers’ scheme was integrated into the general pension fund for government employees.

“Debt levels are expected to rise to 85% of operating revenues in 2004 due to a capital increase in the cantonal pension fund,” S&P said.

Earlier this month the Aargauische Pensionskasse, or APK, said that proposed changes to its scheme have been rejected – although all employees with an income of 18,350 francs a year must be insured.

The City of Lausanne and the Canton of Vaud also faced pension fund performance issues, the S&P report stated.